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AEVA (NASDAQ $IPV, $AEVA) Spac Merger – Lidar Company Recommendation

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Aeva

A quick background on AEVA

Aeva was founded by former Apple Inc. engineers Soroush Dardashti and Mina Rezk. In 2018, the company raised $45 million in a series A funding round co-led by Lux Capital Management and Canaan Partners.

Rezk, who previously designed optical hardware for Nikon and worked alongside Salehian at Apple’s Special Projects Group.

They employ about 100 people in Mountain View, California.

Aeva is planning to merge with a special purpose acquisition company called InterPrivate Acquisition Corp.

AEVA founders
AEVA founders

What does AEVA do?

Aeva has created a miniaturized solid-state photonics chip, called Aeries, that reduces the size and power requirements of typical LIDAR systems. It will cost less than $500 at scale, compared to tens of thousands of dollars.

Instead of pulsing a laser beam that bounces off of objects in a vehicle’s path to determine distance and depth, Aeva’s system emits a continuous, low-power laser beam that measures changes in the frequency of waves reflected off of objects.

LIDAR on a chip
\LIDAR on a chip

What is the unique technology that AEVA has developed?

Aeva’s technology is unique as it has a 4D map. AEVA can measure distance as well as instant velocity without losing range all while preventing interference from the sun or other sensors.

Its technology is also said to use less power which allows it to integrate better with perception software. Its technology is primarily meant for autonomous cars but it is also being leveraged for ADAS systems.

Aeva says its sensor does not rely on powerful lasers or exotic materials, which has helped it to shrink the cost and size of the device.

Aeva’s 4D LIDAR-on-chip uses a continuous laser beam to measure the change in frequency of the waveform as it reflects off of an object. This allows it to detect an object’s range and instant velocity simultaneously beyond 300 meters at high accuracy. Aeva’s 4D LiDAR is free of interference from other sensors or sunlight and it operates at fractions of the optical power typically required to achieve long range performance. 

Small, with constant pulse and low power requirements
Small, with constant pulse and low power requirements

A key differentiator is breaking the dependency between maximum range and points density, which has been a barrier for time-of-flight and FMCW LiDARs so far.

AEVA LiDAR integrates multiple beams on a chip, each beam uniquely capable of measuring more than 2 million points per second at distances beyond 300m.

All lasers, detectors, circuitry, are integrated on a chip at the wafer level, and it’s in production for volumes already targeting use in major OEMs. It will be in cars in the 2022 to 2023 timeline.

AEVA’s sensing system is capable of completely shutting out interference from other, similar sensors — including those from other companies — and operating in all weather conditions and in the dark, thanks to a reflectivity sensor.

Ped final
Sensing depth and velocity

Why is AEVA better than Velodyne or Luminar?

It has high resolution, long range, additionally it gives velocity. It’s scalable because it’s all on a photonics chip–a very small package with low power consumption.

A few other LIDAR startups also rely on a version of frequency modulation. But Aeva’s system uses a continuous beam, rather than a pulsed beam. 

Who is AEVA partnering with?

Aeva and ZF, a top global automotive Tier-1 supplier, are partnering to bring the world’s first Frequency Modulated Continuous Wave (FMCW) LiDAR to the automotive market. 

The company has signed a sensor-system deal with an Audi-owned unit that is working on self-driving technology for Volkswagen Group and is working with German automotive supplier ZF Friedrichshafen to have its sensors in mass production by 2024.

Partnership with Porsche supplier ZF
Partnership with Porsche supplier ZF

Are there other use cases for AEVA?

It has also attracted consumer electronics companies likely phone manufacturers who want to get into smart glasses and augment their smartphone camera systems with LIDARs for better portrait photography, autofocus, low-light performance and augmented reality. 

An increasing number of devices, such as Apple’s new iPad Pro and iPhone 12 Pro models, include lidar sensors that help with applications such as augmented reality, in which digital content is overlaid on the real world.

Who is InterPrivate Group?

InterPrivate is a SPAC led by private equity investor Ahmed Fattouh. It raised $210 million in an initial public offering in February. InterPrivate Acquisition Corp valued AEVA at $2.1 billion. InterPrivate is lead by private equity investor Ahmed Fattouh expects the deal to be closed by early 2021.

When will we see this in cars?

Aeva’s lidar has been on test vehicles for some time, including an experimental version of Audi’s E-Tron. The first commercial application may come in lightly automated, or Level 2, vehicles, but right now, all VW will say is that it plans to put Aeva’s lidar on the ID Buzz AV. That’s a more completely automated, or Level 4, minibus; it’s scheduled to launch in 2022/2023.

VW ID Buzz AV
VW ID Buzz AV

What is the valuation for AEVA?

Aeva was last valued at $460M in 08/19, and its public valuation on the merger date 11/20 was $2.1B. Today (12/29/20) it is valued at over 3.2B (8X valuation gain in 1 year).

Investors include Porche, Audi, Canaan Partners, Lux Capital, Volkswagen Group.

The deal will provide up to $343 million of gross proceeds to AEVA.

AEVA will be richly valued at over $4B (Dec 29, 2020)
AEVA will be richly valued at over $4B (Dec 29, 2020)

Who are the competitors?

AEVA competes with 70+ other LIDAR companies including Waymo (Google), Velodyne, Luminar, Ouster, Quanergy systems and Innoviz.

What is the financial model?

Aeva financial projections
Aeva financial projections

Aeva is expecting meaningful revenues only by 2024. As you can see from their projections, it goes from $11M for next year 2021 to $236M in 2024 and $880M by 2025.

If those projections work out, then given their long term expectation of 62% gross margins, this could end up at nearly $350M in adjusted EBITDA by 2025.

Margin and EBITDA projections
Margin and EBITDA projections

Should you buy the stock?

IPV is a NASDAQ listed SPAC and trades today (12/29/20) at $15.12. That implies a valuation for AEVA at over $4B, twice the proposed valuation at time of acquisition announcement.

With no significant revenues until 2022 or later, this is a purely speculative play. I would recommend a small position close to $13 – $14 and patience for 2+ years.

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Creating Artificial Constraints as a Means to Innovation

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Artificial Constraints

Many of the entrepreneurs I know have created new innovative startups thanks to real constraints they had. For example, I was hearing AirBnB’s Brian Chesky, on the Corner Office podcast and he mentioned that when he and his cofounder were trying to get some money to get started and the only way to keep afloat was to “rent” their air bed they had in their room. That, then led to Air Bed and Breakfast, which is now AirBnB.

This was a real constraint they had – no money to “eat” so they had to make it happen somehow.

I have heard of many stories of innovation where in the protagonists had real constraints of either financial, technology, supply, demand, economic, social or any number of other characteristics.

The interesting story that I have also recently heard of how Facebook has “pivoted” from being a desktop offering to getting a significant part of their revenue from mobile is how they were given the arbitrary constraint of only accessing Facebook via the mobile phone.

So there are ways that you can create “artificial” constraints to force innovation to happen.

Most larger companies and some smaller ones as well, have to constantly find ways to create artificial constraints – to find a way to innovate and be more be a pioneer.

While some constraints are good – lack of funds at the early stage for example and lack of resources, there are entrepreneurs that are stymied by these constraints and those that will find  a way to seek a path to go forward.

I think this is a great way for you to think about innovating in a new space. If you have constraints, find a way to use it to your advantage.

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The Great Mobile App Migration of March 2020

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Mobile App Migration

Over the last few weeks as many in the world have been in lockdown, there has been a temporary “mobile app migration” happening. There are new apps downloaded and they replaced existing apps on the “home screen”.

While some of these apps are likely temporary use, for e.g. I have 6 “conferencing apps” – Zoom, Uber Conference, Webex, Google Hangouts, Blue Jeans and Goto Meeting. That is because of the many people I have conference calls with – each company seems to have chosen a different web conference solution.

Other apps seem like they will have staying power – Houseparty, for e.g. which has games, networking and video conferencing all built into one app to keep in touch with friends and relatives.

Houseparty

The apps that have moved away from my “home” screen, which I expect will come back once the crisis will be behind us include – Uber, Lyft and all the airline apps from Delta, Alaska and United.

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Perseverance with the Ability to Pivot on Data: 21 Traits We Look for in Entrepreneurs

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Perseverance with the Ability to Pivot

There are 5 key inflection points I have noticed which makes founders question their startup, to either make a call to continue working on their startup, pivot to a new problem or quit their startup altogether.

It is at these points that you really get to know the startup founder and their hunger and drive to be successful. I don’t think I can characterize those that choose to quit as “losers” or “quitters” because of many extraneous circumstances, but there is a lot of value that most investors see in entrepreneurs who face an uphill part of their journey to come out on the other side more confident and stronger.

These five inflection points are:

  1. When you have to get the first customers to use and pay for the product you have built after you have “shipped” an alpha / beta / first version. Entrepreneurs quit because they have not found the product-market-fit – because the customer don’t care about the product, there is no market need, or the product is really poorly built, or a host of other reasons.
  2. When you have to start to raise the first external round of financing from people you are not familiar with at all. Entrepreneurs quit because while it is hard to get customers and hire people, it is much more harder to get a smaller set of investors to part with their money, if you do not have “traction”, or “the right management team” or a “killer product”.
  3. When you have to push to break even (financially) and sustain the company to path of being self sufficient. Entrepreneurs quit at this stage because they have now the ability to do multiple things at the same time – grow revenues and manage costs, and many of them like to do one but realize it is hard to do that without affecting the other. So, rather than feel stuck they decide to quit.
  4. When you have to scale and grow faster that the competition – which might mean to hire faster, to get more customers, to drive more sales, or to completely rethink their problem statement and devise new ways to grow faster. Entrepreneurs quit at this point because they are consumed by the magnitude of the problem. They overassess the impact the competition will have on their company, give them too much credit or focus way too much on the competitors, thereby driving their company to the ground.
  5. At any point in the journey, when the founders lose the passion, vision or the drive to succeed. Entrepreneurs quit a these points because they have challenges with their co founder, they don’t agree with the direction they have to take, or encounter the “grass is greener on the other side” syndrome.

While I have observed many entrepreneurs at these stages at  discrete points in time, I have also had the opportunity to observe some entrepreneurs in the continuum, and I am going to give you my observations on 3 of the many folks I have known, who, have quit.

Perseverance separates great entrepreneurs from good ones
Perseverance separates great entrepreneurs from good ones

One went back to college to finish his MBA after getting a running business to a point of near breakeven, another found the business much harder than he originally thought he would and got a job at a larger company and the third was just unable to have the drive to go past 11 “no’s”‘ from angel investors.

Over the last 8 years, if I look at my deeper interactions with over 90 entrepreneurs, who I would have spent at least 100+ hours each, I would say that of the 24 people that are not longer in their startup, the one thing that stands out among the ones that persevere is that it is not “passion” or “vision” at all.

It is the inherent belief that they are solving a problem that they believe is their “calling”. They also don’t believe that there is any other problem that’s worth solving as much, even though there may be easier ways to make money.

So most of my questions of entrepreneurs to test whether they will pivot or quit are around why they want to solve this problem (which I am looking to see if they know enough about in the first place) versus any other one.

The answer to that question is the best indicator I have found to be the difference between the pivots, the leavers and the rest.

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